Tag Archives: MLPs

Some publicly-traded U.S. energy pipeline and oil-storage partnerships are restructuring into simpler business models to help attract new investors and spur growth.

Rising oil and gas production has spawned billions of dollars of new transport, gathering and storage projects. But the companies most responsible for these projects can allocate up to 50 percent of their income to the general partner, leaving less for other holders or to invest in new projects.

Historically, these firms have passed most of their income along to holders and sold equity or debt to finance new projects or acquisitions. But in the last year, what they have had to offer investors has jumped. MPLX Energy Logistics LP, for instance, paid a 9.7 percent annualized distribution last quarter to its holders, up from 7.9 percent a year earlier, according to figures from investment firm East Daley Capital Advisors.

“The higher cash yield makes the economics of these projects a little tougher,” said Kendrick Rhea, an analyst at East Daley Capital. He estimates the cost of equity has risen nearly a third for some companies in the last year.

Kinder Morgan, Inc. (NYSE: KMI) today announced that its Board of Directors has approved a plan pursuant to which it expects to pay quarterly dividends of $.125 per share to its common stockholders ($.50 annually), down from its current quarterly level of $.51, beginning with the fourth quarter 2015 dividend payable in February 2016. This dividend enables the company to use a significant portion of its large cash flow to fund the equity portion of its expansion capital requirements, eliminate any need to access the equity market for the foreseeable future and maintain a solid investment grade credit rating.

There was a lot of hand wringing and gnashing of teeth last week in energy markets, and it had nothing to do with the OPEC non-event. Instead, the focus was Kinder Morgan (KMI), granddaddy of U.S. midstream companies, and usually a darling of analysts and media. Not this time. Over the past few days the stock has been hammered, Moody’s downgraded its debt, and a lot of folks in the market have been trying to figure out what is going on. Particularly since all the hubbub would seem to be about a relatively minor investment (in energy infrastructure terms) in a pipeline called Natural Gas Pipeline of America, or NGPL, one of the oldest of the long-line systems in the U.S., which came online 84 years ago and Kinder Morgan has owned all (or part of) since 1999. In today’s blog, we look at this pipeline system and what it tells us about the current state of the natural gas markets.

Posted onAugust 27, 2015|Comments Off on Mexico to unveil energy investment vehicle in September

Mexico plans to launch in September a new low-tax investment vehicle aimed at tapping markets to fund energy infrastructure in Latin America’s second biggest economy, four people familiar with the matter told Reuters.The new vehicle comes at a time of oil market oversupply that has depressed prices and reduced oil companies’ capacity to invest, but Mexico’s newly opened power market could still prove an attractive near-term destination.The sources said finance authorities are putting the finishing touches on rules for the vehicles, which will be similar to American “Master Limited Partnerships” (MLP) and modeled on Mexico’s successful real estate investment trusts (REIT) which are locally called FIBRAS.

Last Thursday, Linn Energy surprised Wall Street by announcing its intention to suspend its distribution at the end of the third quarter because of weak prices for oil and natural gas. The news sent the highly leveraged firm’s shares down 37%; they closed the week at $4.04.

Barron’s called Linn’s accounting aggressive two years ago when the shares were $38 (“Twilight of a Stock Market Darling,” May 6, 2013).

Photo: Courtesy of Linn Energy

Linn (ticker: LINE) is structured like a master limited partnership and pays a distribution, the MLP form of a dividend. It has long been a favorite of retail investors, who prized it for its payout. Linn has been paying a monthly distribution at a $1.25 annual rate since the start of this year, when it was cut from a rate of $2.90.

Despite the stock’s decline, Linn is no bargain. Given that debt stood at $10.3 billion at the end of the second quarter, ultimately there may be little or no value to Linn’s equity, now worth $1.5 billion.

The company faces financial pressure because the bulk of its cash flow is coming from above-market energy hedges that will roll off in the coming years. It has current-year hedges on gas at $5 per million BTUs (British thermal units), and on oil at around $88 a barrel. Current market prices are below $3 per million BTUs and $50 a barrel for oil.

Linn said Thursday that it is focused on debt reduction, announcing it had repurchased $599 million of public debt in July for 65 cents on the dollar.

Also on July 15, Kinder Morgan announced an increased dividend and reported second-quarter earnings that missed analysts’ expectations.

Kinder Morgan currently owns 51 percent of the ELC joint venture, and Shell owns the remaining 49 percent. Terms of the transaction were not disclosed.

As a result of the deal, Kinder Morgan expects to invest another $630 million in the Elba Liquefaction Project, bringing the company’s total incremental investment in all of Elba’s liquefaction and terminal facilities to approximately $2.1 billion.

ELC owns the Elba Liquefaction Project, which is proposed to be constructed and operated at the existing Elba Island LNG Terminal near Savannah, Georgia. The Hague-based Shell, which has its U.S. arm headquartered in Houston, will retain its 20-year contract to subscribe to 100 percent of the terminal’s 2.5 million tonnes per year of liquefied natural gas export capacity, which is equivalent to approximately 350 million cubic feet per day of natural gas.

Permitting is underway, and the next step in the regulatory approval process is for the Federal Energy Regulatory Commission to issue a draft environmental assessment.

Construction is expected to begin in the fourth quarter, depending on regulatory approvals, and initial production is expected in late 2017.

“Our current project backlog of expansion and joint venture investments is $22 billion,” Kinder Morgan President and CEO Steve Kean said in the company’s second-quarter earnings report released July 15.

A partnership controlled by Marathon Petroleum Corp., a refinery and pipeline company, will buy MarkWest Energy Partners LP for $15.8 billion in one of the biggest oil-patch deals since crude prices began to slump last summer.

The deal will marry Marathon’s oil pipeline network with MarkWest’s business separating natural gas into fuels such as propane and ethane.

The combined company would have a market capitalization of $21 billion, making it the fourth-largest master limited partnership. These partnerships, which typically own infrastructure like pipelines that earn steady revenue from long- term contracts, have fared better than traditional drilling companies during the energy downturn but still have faced headwinds.

The deal is the latest consolidation between energy partnerships, which don’t pay corporate income taxes but distribute their available cash to shareholders. The need to keep these hefty payouts growing means the partnerships are always looking to expand.

Gary R. Heminger, Marathon’s chief executive, said the deal would allow the partnership to boost its annual distribution by 25% through 2017.

“The combination significantly increases our size, scale and the opportunity to grow over a very long period of time,” Mr. Heminger told analysts during a conference call on Monday.

Refiners have been among the newest energy companies to form these partnerships. Marathon Petroleum, of Findlay, Ohio, owns refineries in Texas, Louisiana, and throughout the Midwest. It launched MPLX in 2012 to own and operate pipelines and other fuel transportation assets.

But recently, refiner-backed partnerships have started to branch out beyond their parent companies—and beyond oil. Last year, a partnership controlled by Tesoro Corp., the refiner based in San Antonio, bought a natural gas gathering and processing company for $2.5 billion.

Executives from Marathon and MarkWest said Monday that they began to explore the idea of combining after the two companies worked together on projects in the Northeast, where fuels known as natural gas liquids are commonly produced along with gas in the shale fields of Ohio and Pennsylvania.

The combination illustrates that region’s allure, even as a glut of oil and gas has sent prices for these fuels plummeting in recent months and sparked concern that production could slow down. MarkWest is one of the largest natural- gas processors in the U.S., with a particularly large presence in the Northeast.

As oil prices continue to languish, diversifying into other fuels like natural gas and liquids including propane and ethane becomes more attractive, said Brandon Blossman, a managing director at Tudor Pickering Holt & Co., an energy investment bank based in Houston.

“Low oil prices and the implication that oil volume growth slows or stops has put pressure on the oil-focused midstream players think about diversification towards gas,” he said.

Houston-based Kinder Morgan Inc. (NYSE: KMI) said it will put down $158 million for three terminals and an undeveloped site from the Netherlands-based tank storage company Royal Vopak.

The acquisition includes a 36-acre storage complex in Galena Park, near the Houston Ship Channel. The complex can store more than 1 million barrels of base oils, biodiesel and crude oil, and it is adjacent to Kinder Morgan’s existing Galena Park terminal, according to a company statement.

The acquisition of Royal Vopak’s assets puts Kinder Morgan’s ship channel presence at more than 400 storage tanks with storage capacity of 43 million barrels.

Kinder Morgan also purchased two terminals in Wilmington, North Carolina, and an undeveloped waterfront site in New Jersey.

Brokerage firm Tudor Pickering upgrades its rating on Targa Resources Partners LP (NYSE:NGLS). Many firms have commented on the short term and long term price target. Targa Resources Partners LP (NYSE:NGLS) should head towards $59.15 per share according to 13 Analysts in consensus. However, if the road gets shaky, the stock may fall short to $47 per share. The higher price estimate target is at $78 according to the Analysts.

Research firm Zacks has rated Targa Resources Partners LP (NYSE:NGLS) and has ranked it at 5, indicating that its shares are a Underperform. 13 Wall Street analysts have given the company an average rating of 2.39. The counter has received a hold rating based on the suggestion from 8 analysts in latest recommendations. Strong buy was given by 3 Wall Street Analysts. The counter had a buy rating from 2 analysts.

Targa Resources Partners LP (NYSE:NGLS) suffered a loss, declining 4.32% in its share price. The bears locked in total control while fighting the bulls throughout the day, which ended with the shares losing 2.06 points to close at $45.61. The selling pressure continued unabated since trading commenced at $47.75, while hitting the days high at $49.09, and the shares hit an intraday low of $44.68. In this bearish onslaught, the volume was measured at 990,255 shares. Targa Resources Partners LP (NYSE:NGLS) has a 52-week high of $83.49 and a 52-week low of $39.0501. With around 115,774,000 shares outstanding, the company has a market cap of $5,280 million.

Kinder Morgan (NYSE: KMI ) made big news during its recent earnings call when it announced the $3 billion acquisition of the Bakken midstream MLP Hiland Partners. This is in line with management’s stated goals of increased growth through acquisitions courtesy of Kinder’s $55 billion in tax breaks it will receive thanks to its recent merger with its MLPs.

With Kinder Morgan now clearly on the acquisition prowl, I’d like to point out one of my favorite midstream MLPs, one that analysts believe may be next up on the merger hit list.